Kelly A. Lenahan-Pfahlert

Subscribe to Kelly A. Lenahan-Pfahlert's Posts

Kelly A. Lenahan-Pfahlert | lenahanpfahlertk@ballardspahr.com |  215.864.7311 | view full bio

Kelly focuses her practice on white collar defense and complex civil litigation.  Kelly has substantial experience in litigating BSA/AML issues on behalf of financial institutions relating to both discovery and liability, assisting with AML-related internal investigations

Contact:Read more about Kelly A. Lenahan-Pfahlert

On October 23, the Financial Crimes Enforcement Network (“FinCEN”) published a notice of proposed rulemaking (“NPRM”) entitled Proposal of Special Measure Regarding Convertible Virtual Currency Mixing, as a Class of Transactions of Primary Money Laundering Concern.  Section 311 of the Patriot Act, codified at 31 U.S.C. § 5318A (“Section 311”), grants the Secretary of the Treasury authority – which has been delegated to FinCEN – to require domestic financial institutions and agencies to take certain “special measures” if FinCEN finds that reasonable grounds exist for concluding that one or more classes of transactions within or involving a jurisdiction outside of the United States is of “primary money laundering concern.” 

In this NPRM, FinCEN proposes to designate under Section 311 all convertible virtual currency (“CVC”) mixing transactions, as defined by the NPRM.  This designation would require imposing reporting and recordkeeping requirements upon covered financial institutions (“FIs”) regarding transactions occurring by, through, or to a FI when the FI “knows, suspects, or has reason to suspect” that the transaction involves CVC mixing.

The NPRM is complicated and raises complex questions.  We only summarize here, and note selected issues.  Comments are due on January 22, 2024.  FinCEN can expect many comments.…

Continue Reading  FinCEN Proposes to Require Recordkeeping and Reporting for CVC Mixing Transactions

Complex Civil and Criminal Cases Converge

On August 17, 2023, Judge Robert Pitman of the federal district court for the Western District of Texas issued an Order granting summary judgment for the U.S. Treasury Department (“Treasury”) in a lawsuit brought by six individuals, and denying the cross-motion for summary judgment filed by the individuals. The lawsuit alleged that Treasury overstepped its authority by imposing sanctions on the coin mixing service Tornado Cash.  Deciding for the government, Judge Pitman determined that Tornado Cash is a “person” that may be designated by OFAC sanctions.  Specifically, the regulatory definition of “person” includes an “association,” and Tornado Cash is an “association” within its ordinary meaning.

Shortly thereafter, on August 23, 2023, the U.S. Department of Justice (“DOJ”) unsealed an indictment returned in the Southern District of New York against the alleged developers of Tornado Cash, Roman Storm (“Storm”), a naturalized citizen residing in the U.S., and Roman Semenov (“Semenov”), a Russian citizen.  The indictment charges them with conspiring to commit money laundering, operate an unlicensed money transmitting business, and commit sanctions violations involving the International Emergency Economic Powers Act, or IEEPA.  When the indictment was unsealed, Storm was arrested and then released pending trial.  Treasury simultaneously sanctioned Semenov, who remains outside of the U.S., adding him to OFAC’s Specially Designated Nationals and Blocked Persons (“SDN”) List.

These are very complicated cases raising complicated issues.  They are separate but obviously related.  As we will discuss, the factual and legal issues tend to blend together, and how a party characterizes an issue says a lot about their desired outcome:  has the government taken incoherent action against a technology, or has it pursued a group of people attempting to hide behind tech?…

Continue Reading  All Roads Lead to Roman: Alleged Tornado Cash Co-Founders Roman Storm Arrested and Roman Semenov Sanctioned, Days After Treasury Defeats Lawsuit Challenging OFAC

But Court Gives Turkish Bank Another Chance to Avoid Charges Under Common-Law Sovereign Immunity

On April 19, 2023, the United States Supreme Court issued a highly-anticipated decision in the case of Turkiye Halk Bankasi A.S., aka Halkbank v. United States.  The court ruled that Turkish state-owned Halkbank remained subject to criminal prosecution in U.S. courts under the Foreign Sovereign Immunities Act (“FSIA”) for fraud, money laundering and sanctions-related charges related to the bank’s alleged participation in a multi-billion dollar scheme to evade U.S. sanctions involving Iran.  Specifically, in a seven to two decision, the Court held that the FSIA does not provide foreign states and their instrumentalities with immunity from U.S. criminal proceedings.  However, the Court remanded the case back to the Court of Appeals for the Second Circuit to determine whether Halkbank still can claim sovereign immunity under common law principles.  The Court’s opinion clearly extends beyond just financial institutions owned by foreign governments, and instead implicates any number of foreign state-owned entities.…

Continue Reading  Supreme Court Rules Halkbank is Not Immune from Prosecution Under FSIA

The U.S. Department of Justice (“DOJ”) announced on March 15, 2023 that in a coordinated effort between U.S. Federal Bureau of Investigations, Europol, and German police, the darknet cryptocurrency mixing service ChipMixer has been shut down.  The operation involved the U.S. government’s court-authorized seizure of two domains that directed users to the ChipMixer service and one Github account.  In addition, German authorities seized $46 million in cryptocurrency, as well as ChipMixer’s back-end servers used to run the site. 

Further, the U.S. Attorney’s Office for the Eastern District of Pennsylvania filed a criminal complaint against ChipMixer’s suspected founder, Vietnamese national, Minh Quoc Nguyen (“Nguyen”), alleging that Nguyen openly flouted financial regulations and instructed users how to use ChipMixer to evade reporting requirements while obscuring his true name under a series of stolen and fictitious identities. The complaint also alleges that ChipMixer, described as a popular platform for laundering illicit funds gained from unlawful activities like drug trafficking, ransomware attacks (according to Europol, ransomware actors Zeppelin, SunCrypt, Mamba, Dharma, Lockbit have used ChipMixer), and payment card fraud, was used to launder more than $3 billion in cryptocurrency since 2017.  Nguyen has been charged with money laundering, operating an unlicensed money transmitting business, and identity theft in connection with the operation of ChipMixer. …

Continue Reading  Darkweb Cryptocurrency Mixer ChipMixer Shut Down for Allegedly Laundering $3 Billion Worth of Crypto

Farewell to 2022, and welcome 2023.  As we do every year, let’s look back.

We highlight 12 of our most-read blog posts from 2022, which address many of the key issues we’ve examined during the past year: the Corporate Transparency Act (“CTA”) and beneficial ownership reporting; sanctions — particularly sanctions involving Russia; cryptocurrency and digital…

First Post in a Two-Post Series on the CTA Implementing Regulations

On September 30, 2022, the Financial Crimes Enforcement Network (“FinCEN”) issued its final rule, Beneficial Ownership Information Reporting Requirements (“Final Rule”), implementing the beneficial ownership reporting requirements of the Corporate Transparency Act (“CTA”). 

FinCEN’s September 29, 2022 press release is here; the Final Rule is here; and a summary “fact sheet” regarding the rule is here.  The Final Rule largely tracks the December 8, 2021 Notice of Proposed Rulemaking (the “Proposed Rule”), on which we blogged here and here. 

The Final Rule requires many corporations, limited liability companies, and other entities created in or registered to do business in the United States to report information (“BOI”) about their beneficial owners — the persons who ultimately own and control the company — to FinCEN.  This information will be housed within the forthcoming Beneficial Ownership Secure System (“BOSS”), a non-public database under development by FinCEN. 

The Final Rule takes effect on January 1, 2024.  In a nutshell, (1) companies subject to the BOI reporting rules (“reporting companies”) created or registered before the effective date will have one year, until January 1, 2025, to file their initial reports of BOI and (2) reporting companies created or registered after the effective date will have 30 days after creation or registration to file their initial reports.  In addition to the initial filing obligation, reporting companies will have to file updates within 30 days of a relevant change in their BOI.  And, as we discuss, covered companies also will have to report their “company applicants,” which could include lawyers, accountants or other third-party professionals.

The Final Rule will have broad effect.  FinCEN estimates that over 32 million initial BOI reports will be filed in the first year of the Final Rule taking effect, and that approximately 5 million initial BOI reports and over 14 million updated reports will be filed in each subsequent year.  We summarize here the key provisions of the Final Rule.  In our next blog post, we will discuss the Final Rule’s broad definition of the “control” prong regarding who represents a “beneficial owner,” which will result in an expansion of the definition of “beneficial owner” under the existing Customer Due Diligence (“CDD”) rule applicable to banks and other financial institutions (“FIs”).…

Continue Reading  FinCEN Issues Final Rule on Beneficial Ownership Reporting Requirements

The Financial Crimes Enforcement Network (FinCEN) and the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) issued a joint alert on June 28, 2022, warning of evasion attempts by individuals or entities to circumvent BIS export controls implemented in response to the Russian Federation’s renewed invasion of Ukraine. Both agencies urged financial institutions to remain vigilant against bad actors’ attempts to evade BIS export controls. The alert provided an overview of current BIS export restrictions, listed particular commodities of concern for export control evasion, and outlined transactional and behavioral red flags that could indicate attempts to avoid sanctions.

This is FinCEN’s third alert in relation to sanctions imposed on Russian in response to the war in Ukraine.  As we previously blogged, on March 7, 2022, FinCEN urged vigilance by financial institutions against potential Russian Federation attempts to evade sanctions. On March 16, 2022, FinCEN reiterated the need for increased vigilance by financial institutions in detecting suspicious transactions involving real estate, luxury goods, and other high-value assets.

The joint alert comes on the heels of the June 27, 2022 announcement by the United States and the other G7 nations to intensify their coordinated sanction measures in response to Russia’s war of aggression.  A day later, on June 28, 2022, the Treasury Department’s Office of Foreign Assets Control (OFAC) issued determinations pursuant to prior Executive Orders implementing the new measures.  These include prohibiting the importation of Russian gold (EO 14068), as well as new sanctions and export restrictions on entities like Rostec, a key Russian state owned conglomerate, which forms the foundation of Russia’s defense industry (EO 14024).…

Continue Reading  FinCEN and BIS Issue Joint Alert on Potential Russian and Belarusian Export Control Evasion

Case Highlights the Role of Correspondent Bank Accounts and Circumvention of AML Programs

Court Order Describes Seizure as a “Reckoning” for Atrocities in the Ukraine

On April 4, 2022, Magistrate Judge Zia M. Faruqui of the United States District Court for the District of Columbia granted the government’s Application for Warrant to Seize Property Subject to Forfeiture, finding that there was probable cause to believe that the yacht Tango, a 255-foot luxury yacht allegedly owned by sanctioned Russian oligarch Viktor Vekselberg, was subject to forfeiture based on alleged violations of U.S. bank fraud, money laundering, and sanction statutes.  The Tango is located in a shipyard on the Spanish island of Mallorca, and the warrant and subsequent seizure by the United States and its allies was part of Task Force KleptoCapture, an interagency law enforcement task force designed to help deploy U.S. prosecutorial and law enforcement resources to identify sanctions evasion and related criminal conduct.

Sanctions were imposed on Vekselberg and the company he founded, the Renova Group, in April 2018 by the Treasury Department. Following Russia’s invasion of Ukraine, Vekselberg was hit with new penalties by the U.S. government on March 11, 2022.  These sanctions were pursuant to various Executive Orders under the International Emergency Economic Powers Act (“IEEPA”) imposed against persons responsible for or complicit in certain activities with respect to Ukraine.
Continue Reading  Russian Oligarch’s Yacht Subject to Forfeiture Based on Alleged Violations of Bank Fraud, Money Laundering, and U.S. Sanction Statutes

On January 13, 2022, Himamauli “Him” Das, the Acting Director of FinCEN, virtually addressed the Financial Crimes Enforcement Conference hosted by the American Bankers Association and the American Bar Association.  In his speech, Mr. Das highlighted the transformation and modernization of the anti-money laundering/counter-terrorist financing (“AML/CFT”) regulatory framework from a tool updated in the wake of September 11, 2001 to combat money flows to terrorist organizations, to an instrument designed to address the more complex current and future challenges presented by digital assets and strategic corruption.

Acting on the authority accorded FinCEN by the Anti-Money Laundering Act of 2020 (the “AML Act”), FinCEN has been in the process of reorganizing and upscaling several of its divisions in order to meet increased obligations. New divisions include the Global Investigations Division, the Strategic Operations Division and the Enforcement and Compliance Division, which together work to combine resources against bad actors, share information, and act to resolve investigations across the financial sector. Mr. Das focused on three additional areas that FinCEN would concentrate on moving forward: new threats, new innovations and new partnerships.
Continue Reading  Transformation of the AML/CFT Regulatory Regime Requires Innovation and Collaboration, According to FinCEN Acting Director

Farewell to 2021, and welcome 2022 — which hopefully will be better year for all.  As we do every year, let’s look back — because 2021 was a very busy year in the world of money laundering and BSA/AML compliance, and 2022 is shaping up to be the same.

Indicative of the increased pace and…